Issues in implementing IFRS in post IFRS harmonization areas

This article discusses the challenges faced in implementing IFRS in post IFRS harmonization areas and the convergence of IFRS. It analyzes the perspectives of institutional theory and compares the financial statements of companies listed on ASX and NYSE.

Running head: ISSUES IN IMPLEMENTING IFRS IN POST IFRS HARMINIZATION
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Issues in implementing IFRS in post IFRS harmonization areas
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ISSUES IN IMPLEMENTING IFRS IN POST IFRS HARMINIZATION AREAS
Executive summary:
For the purpose of analysis, six companies have been operating in the same sector selected
from two difference countries. For the analysis, six companies have been chosen from
minerals and material sector listed on the New York Stock Exchange (NYSE) and
Australians stock exchange (ASX). The three companies from ASX include BHP Billiton
Limited, Rio Tinto and Boral Limited and other three companies that are selected from
NYSE include Halcon Resources Corporation, CNX resources Corporation and EQT
Corporation.

ISSUES IN IMPLEMENTING IFRS IN POST IFRS HARMINIZATION AREAS
Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................3
Answer to requirement A:..........................................................................................................3
Answer requirement B:..............................................................................................................3
Answer to requirement C:..........................................................................................................3
Answer to requirement D:..........................................................................................................3
Conclusion:................................................................................................................................3

ISSUES IN IMPLEMENTING IFRS IN POST IFRS HARMINIZATION AREAS
Introduction:
The report is prepared to conduct a detailed investigation on the convergence of IFRS
(International financial reporting standard) and whether the objective of such convergence
has been achieved or not. The study takes into account the perspectives of institutional theory
for explaining the challenges faced in implementing IFRS and in its convergence.
Convergence of the accounting standard implies that establishment of single set of accounting
standard at the international level that helps in reducing the diversity in the reporting format
between different countries. Increasing the comparability of the financial statement is one of
the primary objectives of the convergence US GAAP (Generally accepted accounting
principles) and IFRS (Baskerville and Grossi 2019). The evaluation of the IFRS convergence
is done by comparing the basis of the preparation of the financial statements of different
companies operating in the same industry and selected from two different countries. These
comprised of BHP Billiton, Boral limited, Rio Tinto, Halcon Resources, EQT Corporation
and CNX resources limited. Just like any other transitional process, convergence is not an
easy task and the prospects and issues are there both in the developing and developed
economies. The current paper highlights the looks into the extent to which the IFRS has been
successful along with the issues faced due to the adoption of such internationalized standard.
Discussion:
Answer to requirement A:
Convergence of the accounting standard refers to the objective of establishing a single
set of high quality accounting standards that would be used at the international level and the
efforts of the accounting standard board in achieving such objectives. The essence of
convergence lies in the promoting simplicity, consistency, streamlining, transparency and

ISSUES IN IMPLEMENTING IFRS IN POST IFRS HARMINIZATION AREAS
avoiding confusion, conflict and any future meltdown and financial crisis. With all the major
economies planning to convergence towards IFRS, it can be observed that convergence is
taking place in all the other countries. For instance, all the listed companies in Canada were
required to use IFRS and the use of IFRS was permitted by Japan for some multinational
companies. Nigeria was also required to adopt the internationalized standard. Some of the
articles have been chosen for analyzing the impacts created by the harmonization of global
financial reporting with evidences from developed and developing countries (Lin et al. 2017).
The article titled” Relative Effects of IFRS Adoption and IFRS Convergence on
Financial Statement Comparability” examined the effectiveness of the convergence on the
financial statements using a unique setting in Germany. The intended benefits of the adoption
an convergence is to increase the comparability of the financial statements that are prepared
by companies located in different countries. It might be expected hat the adoption of IFRS
would significantly improve the comparability between the firms by eliminating the
differences in accounting. However, a limited effect is created on the comparability due to the
adoption of IFRS. The discretion of managers can adversely affect the financial reporting
prepared under IFRS as they are more principle based. Moreover, in relation to the practice
and implementation of IFRS, there exist considerable variations as IASB is not authorized to
impose compliance with IFRS in the individual countries (Trimble 2018). It has been found
using several comparability metrics in the article that the comparability of the financial
statements has increased after the enforcement regulation.
Another article titled” A Reinvestigation into Accounting Quality Following Global
IFRS Adoption: Evidence via Earnings Distributions” has conducted an investigation in
determining the impact of mandatory adoption of IFRS on the accounting quality using
distribution on earnings. The study has examined the reporting system of considerable
number of firms from different countries. A series of cross sectional analysis is done for

ISSUES IN IMPLEMENTING IFRS IN POST IFRS HARMINIZATION AREAS
assessing the validity of distribution measure and differences in reporting environment and
the paper contributes to the literature in number of ways. It has been ascertained for both the
EU and non EU countries that there has been decrease in the earning distribution after the
mandatory adoption of the standard. It is evident from the results obtained that there is a
strong positive effect on the quality of accounting in countries outside the European Union
after the adoption of IFRS. However, for non EU countries, where the reporting requirements
are generally lower with low regulator attention and user demand, the reporting quality is
initially lower. Therefore, the adoption of IFRS has larger impact on non EU countries.
Alternatively, firms operating in non EU might rely on the adoption of IFRS as signal of
quality for becoming competitive in the international market. The countries witnessing
positive changes to the accounting enforcement found to have limited capital market benefits
after the adoption of IFRS (Yapa 2016). Therefore, from the analysis of the article, it has
been found that the quality of accounting has increased in both the EU and non EU countries
after the adoption of IFRS along with decrease in the earnings distribution.
The article titled” a literature review on the impact of IAS/IFRS and regulations on
quality of financial reporting reviews that literature on whether the adoption of IFRS has
resulted in improving the quality of financial reporting for listed companies. It is evident
from the previous studies that are conducted in line with the issues that the regulation effect
and IFRS impact the quality of financial reporting does not have any conclusive evidences.
The results obtained from the previous studies on the voluntary adoption providing
contrasting facts about the adoption of IFRS on the financial reporting quality cannot be
generalized in the current mandatory settings (Newman et al. 2016). The findings generated
from the examination of mandatory adoption of IFRS on the financial reporting is consistent
with the conclusion that is drawn from the literature that views that financial reporting quality
is improved due to adoption of IFRS. Since, the principle based standards are lower than the

ISSUES IN IMPLEMENTING IFRS IN POST IFRS HARMINIZATION AREAS
local standards, the objective of mandatory adoption of IFRS in benefitting the financial
reporting quality cannot be found. From the analysis of the facts presented in the article, it
can be inferred that the debate revolving around the financial reporting quality due to the
convergence are yet to provide answers on how the regulations and IFRS impacts the
financial reporting quality. The researcher in this paper was encouraged to conduct an
examination into the poor reporting quality of the listed companies in Zimbabwe. It is also
indicated by the literature review that there are variety of factors that forms the basis of
financial reporting quality. However, the study failed to find any systematic evidences that
the adoption of IFRS would result in improving the quality of financial reporting for the
mandatory adopters. In addition to this, it was also founded in the study that there was not
any change in the meeting earnings of the firms converging with the local standards
(Newman et al. 2017). It was consistently reported by the results deduced from the article
there was reduction in the quality of financial reporting over time. Furthermore, the fact that
the IFRS cannot be superior to the established local standards has also been acknowledged in
the report.
Answer requirement B:
Some of the journal articles have assessed the process of convergence of IFRS and
challenging issues faced along with the challenges faced when implementing the
internationalized standard using the perspective of institutional theory. Such theory helps in
explaining the adoption of IFRS in the events when economic pressure is not the only drivers
and how the accounting practitioner and accounting standard setting bodies have searched for
the legitimacy. The accounting standards are influenced by the several factors along with the
institutional influences on the diversity of accounting standards such as political, economic,
educational, legal and religious system. The context of institution explains that the

ISSUES IN IMPLEMENTING IFRS IN POST IFRS HARMINIZATION AREAS
institutionalization can be viewed as the social process with the help of which the national
accounting standards are accepted by the individual in the interest of harmonization of the
international accounting (Felski 2017). This provides an explanation of the fact that why the
countries tend to use the same accounting standard. This tendency to adopt the internal
standard continues irrespective of the fact that the adoption might not results in economic
benefits as promoted by IASB (Tsunogaya 2016). Therefore, to conduct a study on the
adoption of IFRS, it is considered appropriate to use institutional theory of isomorphism. The
study evaluating the global fitness of the accounting standards in the institutional theoretical
perspective have concentrated on the response of organization to adapt to the standards in
light of the pressure from institutional environment. It has been found from one of the articles
that the probability of developing countries to adopt the IFRS is better predicted by the
institutional isomorphism. Moreover, the institutional pressure is more influential in adopting
the IFRS compared to the other economic pressures such as growth of GDP and inflow of
FDI (Leuz and Wysocki 2016). It has been stated that the standardization has benefitted the
super national regulations, but in order to address the needs of the firms in country, it is
required to have jurisdictional regulations for avoiding the problems caused due to the
approach of one size fits all. There are significant differences in the reporting standard of the
firms in different countries because the reporting incentives of managers are affected by the
institutional factors. Such institutional factors include strength of enforcement regime, legal
system of country, compensation of firms, governance structure, ownership and capital
market forces. For instance, it would be futile for companies such as USA and Japan to adopt
IFRS without adjusting for resources and related facilities as they have well organized related
infrastructures (Nnadi and Soobaroyen 2015). A plurality of models is assumed by
institutional perspective which emphasizes on creation of link between the several
institutions. Therefore, many of countries take into consideration institutional factors before

ISSUES IN IMPLEMENTING IFRS IN POST IFRS HARMINIZATION AREAS
adopting the IFRS and this count on one of the challenges that is encountered while adopting
the IFRS.
Answer to requirement C:
This section demonstrates the comparison between the financial statement of the
companies listed on ASX and NYSE. For this, six companies operating in the same industry
have been taken into account.
BHP Billiton Limited is one of the largest mining companies of Australia that is
engaged in the production of steel, iron, silver, copper, oil and gas and aluminum. The
strategy of the company rests in operating and owning low cost, life long, upstream and
diversified assets by geography, commodity and market (Li and Qin 2018). The financial
statements of BHP Billiton limited have been prepared according to the requirements of the
UK companies Act, 2006 and Australian corporation Act, 2001. In addition to this, the
consolidated general purpose report has also been prepared according to the interpretation
and the accounting standards collectively referred to as IFRS and AASB (Australian
accounting standard board) that is being equivalent to the IFRS along with the IFRS and
interpretations that are adopted by the European Union. The company also fulfills the
requirement of consistency in the presentation of the financial statements in the current year
by presenting reclassified comparative information (Bhp.com 2019). In addition to this, all
the amended and the new standards along with the interpretations that are issued by relevant
bodies under IFRS have been adopted by the company.
Rio Tinto is one of the largest mining and metal companies of the world that is based
in Australia. The focus of the company as a leading global mining group lies in mining,
finding and processing the mineral resources of Earth. Rio Tinto has prepared the financial
report for the year ending 2018 according to IFRS which differs in certain aspects from the

ISSUES IN IMPLEMENTING IFRS IN POST IFRS HARMINIZATION AREAS
IFRS version in Australia that is referred to as AASB. The financial statement of the group
was prepared according to UK GAAP prior to January, 2004. In addition to this, some of the
accounting treatment has been done under the rules governing the transition set out in IFRS 1
compared to IFRS such as elimination of goodwill directly against the equity. In addition to
this, the netting of goodwill against the equity is not provided by AASB 1 and consequently,
the shareholders fund includes the residue of goodwill. The financial statements are also
drawn upon in accordance with the section 340 of the Australian Corporations Act 2001 that
is issued by ASIC (Riotinto.com 2019). This requires the financial statements to be prepared
according to the requirement and principles of IFRS adopted by the EU.
Boral limited is an Australian company that is engaged in supplying and
manufacturing of construction and building materials and carries out its operation in Asia and
United States. The organization is reaping the benefits of strong construction market with a
particular emphasis on the activities of infrastructure. The consolidated financial statements
for year ending 2018 are prepared according to the requirement of Corporation Act, 2001 and
Australian accounting standard which is issued by AASB. Financial statements incorporate
the financial statements of the entities which the group controls and the company as a whole.
Company while preparing financial report encompasses all the transactions, unrealized profits
and intercompany balances (Boral.com 2019).
Halcon Resources Corporation is an independent energy company focusing on the
exploration, acquisition, production and on shore liquid rich oil and natural gas development.
The consolidated financial statements of the group are prepared in conformity with the
generally accepted accounting principles (US GAAP). This requires the management of
company to make assumptions and estimates that impact the disclosure of contingent assets
and liabilities and the amount reported for the assets and liabilities. The judgment and

ISSUES IN IMPLEMENTING IFRS IN POST IFRS HARMINIZATION AREAS
estimates is done by the company based on historical values that are believed to be relevant
under the circumstances (halconresources.com 2019).
CNX Corporation is an oil and gas company operating independently and is engaged
in the development and exploration of the natural gas. The consolidated financial statements
of the group is prepared in conformity with the US GAAP that requires the management of
company to make assumptions and estimates that impact the disclosure of contingent assets
and liabilities and the amount reported for the assets and liabilities. In addition to this, the
controlled entities of the group is required to consolidate that is pursuant to the topic of
consolidation of the FASB (Financial accounting standard board). The annual report discloses
that the supplement gas data is prepared in accordance with the accounting standards of
FASB (Investors.cnx.com 2019).
EQT Corporation is the largest producer of natural gas in United States and is a
technology driven leader and its associated benefits would give the lowest cost structure in
the industry of natural gas. The US GAAP forms the basis of preparation of consolidates
financial statement of EQT Corporation that requires the management to make assumption
and estimates affecting the reported amount of liabilities and assets. For the measurement and
recognition of the items in the financial statement, the attribute concerning the same is
utilized by the company. In addition to this, EQT Corporation has also complied with the
accounting standards updates that are issued by the FASB (Ir.eqt.com 2019).
From the analysis of the annual report of all the listed companies on the ASX and
NYSE, it can be inferred that the organizations listed on the ASX has complied with the IFRS
and AASB and that of NYSE listed organization has prepared the financial statement in
confirmation with the US GAAP and accounting standards issued by FASB wherever
applicable. Therefore, it can be said that there is a difference in the reporting system of the

ISSUES IN IMPLEMENTING IFRS IN POST IFRS HARMINIZATION AREAS
companies listed on the ASX and NYSE and the differences is attributable to the compliance
of the accounting standard.
Answer to requirement D:
The evaluation of the financial statements of the companies listed on ASX ascertains
that the companies have adopted and have prepared such statements in conformity with the
IFRS. However, the convergence with the internationally accepted standards and principles
by the companies has been largely shaped by the international forces such as foreign
investors, supranational organizations and the accounting firms. Other factor that has been
identified to influence the adoption of IFRS by ASX companies is the interaction amongst
organizational players who may mobilize the power to protect their interest and preserve the
status quo (Babatunde 2017). The adoption of the IFRS by the US companies is restricted due
to the differences between the US GAAP and IFRS legal requirements and the model
according to which the reporting should be done. It has been found that the comparability
between the financial statements prepared by US GAAP and IFRS can be enhanced.
However, the GAAP practice resulting from the US economic setting is supported and the
adoption of the IFRS is restricted due to the cost of information processing and home bias
frictions (Bhimani et al. 2019).
Conclusion:
The report prepared above deduces the fact that adoption of IFRS and its
convergence has resulted in significant benefits when it comes to report the financial
statement. This has been witnessed by the improvement in the comparability of the financial
statements. However, it has also been found that there might improvement in the financial
reporting quality in other aspects such as earnings distribution and other factors. In addition
to this, it can also be observed from the analysis that incorporating the institutional theory

ISSUES IN IMPLEMENTING IFRS IN POST IFRS HARMINIZATION AREAS
sufficiently contributes to address the challenges faced in the standard implementation.
Furthermore, from the analysis f the financial statements of ASX and NYSE companies, it is
ascertained hat there exist difference in their reporting system as the former adheres to IFRS
and later adheres to US GAAP. The findings have been supported by the factors that restricts
the companies or countries from adopting the IFRS.

ISSUES IN IMPLEMENTING IFRS IN POST IFRS HARMINIZATION AREAS
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